The Principal Financial Group®, the nation's 401(k) leader, commissioned Harris Interactive® to conduct online research with employees (ages 18+) of small and mid-sized (SMB) U.S. businesses (firm size 10 – 1,000 employees) about their attitudes and perceptions regarding their financial well being and their current employee benefits. To compare responses, Harris Interactive also interviewed a group of retirees. Harris Interactive conducted The Principal Financial Well-Being Index survey online among 1360 employees and 721 retirees from August 2-21, 2006. Data were weighted to be representative of the entire population of adult employees working for small to midsized U.S. businesses and retirees on the basis of age by gender, age, education, race/ethnicity, region, income and propensity to be online. With a probability sample of this size, one can say with 95% certainty that the results have a statistical precision of ± 3 percentage points for employees and ± 4 percentage points for retirees; however, this online sample was not a probability sample. This is one in a series of quarterly studies to identify and track changes in the workplace of small and mid-sized (growing) businesses. The first Principal Financial Well-Being IndexSM survey was conducted in the United States in 2000.

Key Findings

Employee and Retiree Comparisons

Financial Planning Assistance and Regrets - Employees and retirees were asked to name the best lesson learned from receiving financial planning advice. Half of the employees and significantly more retirees (57%) said they have not received any financial planning. The most frequently mentioned best lesson by both retirees (19%) and employees (20%) was to "diversify my portfolio". The financial planning regret cited most often by retirees (32%) and employees (45%) was that they started saving too late.

Money in 401(k)/403(b) plan with Previous Employer - More than four in ten employees (45%) and three in ten retirees (30%) said they had left an employer where they had money in a 401(k)/403(b) plan. When asked what was done with the money, employees (40%) were most likely to cash out the account and take the money. The majority of retirees (60%) said they rolled it over into a personal IRA account.

Windfall of Money - Employees and retirees were asked how they would spend a sudden windfall of money. Three-fourths of employees said they would pay off debt compared to only 38% of the retirees. Both employees and retirees (58% and 55%) said they would work with a financial advisor to figure out the best way to use it. Retirees (46%) were significantly more likely to share it with friends and family than employees (36%).

Financial Well Being in Retirement - Employees and retirees have many issues regarding retirement they say are keeping them awake at night. The issue mentioned most often by employees (43%) is being able to afford good medical care. The issue cited most often by retirees (37%) is the rising cost of inflation reducing purchasing power.

Transition Plan for Retirement - Thirty percent of employees have a plan for how to transition their retirement savings into a steady stream of income in retirement. Significantly more employees (51%) age 55+ have a plan for how to transition their retirement savings into a steady stream of income in retirement than the younger age groups. Also, significantly more male employees (35%) have a transition plan than female employees (24%). Half of retirees (51%) have a plan for transitioning retirement savings into a steady income stream in retirement.

Financial Well Being - Significantly more employees (68%) are concerned about their long-term financial future than retirees (48%)

State of Retirement - Retirees and employees were asked a series of questions about their perception of things related to retirement. Not surprisingly, retirees were significantly more confident than the employee group across all the items asked. For example, almost four out of five (79%) retirees were confident or somewhat confident they will have enough money to take care of basic expenses during retirement compared to 62% of the employees.

Rising Fuel Costs - Respondents were asked if the rising cost of fuel had influenced various activities in their lives. Close to four in ten (37%) employees say it has had an impact on their holiday/vacation plans and three in ten (31%) say the amount of money put into savings has been reduced. The greatest impact for retirees has been on holiday/ vacation plans with slightly more than one-fourth (26%) saying it had an impact. Forty-two percent of retirees say the rising cost of fuel has had no impact on their lifestyle, much more so than employees (28%).

Employees Only

401(k) Deferral - There is huge a gap in terms of what employees think they should defer to their 401(k) retirement plan to live comfortably in retirement and what they are actually deferring. One-fifth (21%) of all eligible employees said they don't currently defer any of their salary. 29% contribute 1-5 percent of their salary. 31% contribute 6 to 10 percent of their salary. Only twelve percent contribute 11 percent or more of their salary. Employees were asked what they feel they should be deferring so they could be comfortable in retirement. Almost half (47%) feel they should be deferring eleven percent or more.

Benefit Satisfaction and Importance - Disability insurance and health insurance have experienced significant increases in satisfaction levels since third quarter of 2005. Defined contribution plans have increased significantly in importance when compared with last year.

Benefits Availability - There have been some significant increases in the availability of some company sponsored benefits since third quarter of 2005. Availability of health insurance, defined contribution plans, life insurance and defined benefit plans all increased significantly. The availability of disability insurance, financial planning and executive benefits decreased significantly since last year.

Health Savings Accounts (HSA) - Significantly more employees have heard of an HSA (62% vs. 48%) than when this question was last asked in second quarter of 2005. Also, males are significantly more likely to have heard of an HSA than females (69% versus 54%). Among those aware of HSAs, significantly more employees (14%) are actually enrolled in an HSA through their current employer than the 9% who were enrolled in second quarter 2005.

Automatic Enrollment/Deferral Increases - 19% of employees working at firms with 10-1000 employees indicated that their employers offer automatic enrollment. Those at firms with 10-50 employees are significantly more likely than those at firms with 501-1000 employees to say their companies auto enroll them in the 401(k) retirement plan. Over half (52%) of the employees completely or somewhat agree that if offered, they would enroll in a program that would automatically increase their 401(k) deferral rate 1% each year.

Managing Investments - Over half (53%) of the employees prefer to select investment funds/accounts on their own. Males (57%) were significantly more likely to prefer to select their own investment funds/accounts than females (48%). Additionally, respondents who noted they prefer to have someone else manage their investments were also asked if they preferred lifestyle funds handled by a fund manager or fee-based financial advisors acting on their behalf. Consistent with last year's results, the largest proportion of employees (56%) preferred lifestyle funds.